Recent Commentary

MMA Muni Outlook October 2010

Market Summary

Seasonals Prevailed: Yields Rose Amid Supply

The tax-exempt market experienced a weaker October, a condition consistent with the seasonal bias of recent years and that of the late 1990’s, when similarly the industry was dependent on the traditional investor for its demand. MMA’s benchmark 10-yr yield rose 5 bps during the month. However, MMA’s measure of yield change paled to the leading edge of the market, AAA 5% coupons - the “super high-grades.” As represented by Wake Co., NC 10-yr maturity experienced a rise of 16 bps, Figure 1. Bar-clay’s LMIS Index also rose 15 bps reflecting the sharp adjustment in areas that had reached an excessive price premium in 3Q. The intermediate area of the yield curve was under the most amount of pressure, as investors and proprietary desks sought to sell in the most “liquid” area of the curve. The longer maturities reflected a less adverse change as evidenced by Salt River, AZ’s mere 6 bps change (MMA’s 30-yr benchmark rose 9bps). Throughout the month, there was greater evidence of challenges to distribute new issue product—the daily average offering par rose above 3Q’s pace. The difficulties were exempli-fied at month-end when the $336MM CT special tax obligation transportation issue had to be cheapened 5 to 24 bps in order to clear the market. This inhibitive condition occurred in spite of a coinciding stable/firm Treasury market.